This summary is based on the second quarter fiscal 2007 earnings call conducted by AutoNation Inc. (AN: chart) on July 26, 2007.
VP of IR: John M. Zimmerman
Chairman and CEO: Mike J. Jackson
EVP and CFO: Michael J. Short
President and COO: Michael E. Maroone
Key Investors Issues
- EPS were 37 cents a share compared to 32 cents a share last year.
- Income was $77.3 million compared to $72.7 million in the year-ago quarter.
- Sales were $4.6 billion compared to $4.9 billion last year.
Second Quarter Highlights
Earnings per share from continuing operations were 38 ce4nts per share compared to a year ago EPS of 33 cents per share.
Last year''s second quarter results included one-time debt repurchase costs of approximately $21 million after-tax or 9 cents per share.
Results reflected a decline in new vehicle retail sales, especially in California and Florida, plus the offset by tax adjustment.
- Industry new vehicle retail sales for California and Florida were off approximately 14% based on CNW Research data.
- AutoNation''s decline in new vehicle sales for California and Florida was 16%.
- Together, Florida and California represent approximately 50% of the company''s new vehicle business and 20% of the industry''s retail new vehicles sold in the United States.
- The slump in the California and Florida housing markets continue to impact consumers'' willingness and ability to make large ticket purchases, including autos.
- The combination of declining home prices and increased adjustable rate mortgages has resulted in large numbers of consumers with reduced or negative equity in their home along with tighter lines of credit.
Operating profit was $185 million, down 13% from $212 million a year ago.
- SG&A as a percentage of gross profit increased 110 basis points to 71.3% from 70.2% a year ago.
- Although variable costs declined in line with gross profit decrease, the company did experience a deleveraging in fixed cost structure due to the decline in vehicle sales.
- The company had an effective income tax rate of 37.3% versus a prior-year effective rate of 38.4%.
The company repurchased 8.7 million shares of stock for $190 million.
900,000 shares of common stock were issued upon the exercise of stock options, resulting in proceeds of $13 million. At June 30, 2007, there were 13.2 million stock options outstanding, representing a 6.5% overhang.
- AutoNation reinvested $37 million in the business through capital expenditures.
After the quarter, the company completed an amendment to credit agreement, which consists of $7 million revolving credit facility, and $600 million term loan facility.
The key changes include an extension of the maturity to July 2012, a reduction in pricing, and fees of approximately $3 million on an annual basis, as well as increased covenant flexibility.
- At June 30, non-vehicle debt was $1.5 billion and the company had unused revolving credit availability of approximately $453 million.
- Non-vehicle debt to capital ratio was 29%.
The industry saw a quarter that was characterized by heightened pressure on auto retail sales, resulting in large part from continued weakness in the housing markets in California and Florida.
- At AutoNation, where these two states represent half of unit sales, the company experienced the drop in new unit volume for total of 16%.
- New unit volume excluding California and Florida was down 7%. A decline of this magnitude creates a competitive environment with increased pressure on gross margins and a fewer number of trade-ins impacting used business as well.
- At June 30th for total stores new day supply was 56 days versus 60 days a year ago. The company closed the quarter with 63,000 new units in inventory, a reduction of 12,000 units or 16% compared to the period a year ago, driven once again by reduction in domestic units in inventory. The company ended the quarter with a 44-day supply.
